EduIndia Fund I · Target portfolio: 1,000 schools by year 3. Loan/school: USD 17k. Collateral: 80%...

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EduIndia Fund IA private growth debt fund fostering education access and retention in India

Los Angeles, 3 May 2017

INDIA EDUCATION PARTNERS

Halgeri, AshwinHoeveler, Erica Shaw, Chris

Presenter

Presentation Notes

Good afternoon. I am Ashwin, he is Chris and she is Erica. We are working to improve education in India by funding low fee private schools. We will start by raising an $11Mn, 10-year private debt fund that provides expansion loans to low-fee private schools and has 7% real returns which is comparable to LT debt in India.

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Low-fee private schools (LFPS): promising alternative to ineffective government run schools for low-income parents

182MM K-12 students

served by LPFS (40%)

For every 100 students enrolled another 50 are

turned away

1.5MM Schools

400,000are LPFS (25%)

• Quality• Broader content coverage• Costs INR500/month

Presenter

Presentation Notes

There are 1.5 million K-12 schools in India. 400,000 of them are a new type of school called Low Fee Private Schools. For a small fee of US$7.5 per month, students can get better quality education than they can at the free government schools. This has proven very attractive, since 182 million students are currently enrolled in these types of schools. That is 40% of the K-12 student population. Still, the low fee private schools that we spoke with mentioned that for every 100 students that enroll, they have to turn 50 away. There is excess demand which is not being satisfied.

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Room for LFPS to grow, but most lack access to capital

Registered LFPS Unregistered LFPS (Closure risk)

150K Tier 1 schools 150K Tier 2 schools 50K Tier 3 schools 50K Tier 4 schools

Served with term loans:

US$3.5Bn unserved

Revenue stability & asset base

$4.6B $2.3B $0.8B $0.4BDemand for capital (US$) Demand for capital (US$) Demand for capital (US$) Demand for capital (US$)

Presenter

Presentation Notes

The reason is that most of these schools lack access to capital to grow. The largest and most expensive tier of schools get capital in the form of term loans for expansions from the specialized lenders ISFC and Varthana, the remaining schools remain unserved today.

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Room for LFPS to grow, but most lack access to capital

Registered LFPS Unregistered LFPS (Closure risk)

150K Tier 1 schools 150K Tier 2 schools 50K Tier 3 schools 50K Tier 4 schools

Served with term loans:

Small marketHigh risk

Revenue stability & asset base

$4.6B $2.3B $0.8B $0.4BDemand for capital (US$) Demand for capital (US$) Demand for capital (US$) Demand for capital (US$)

EduIndia I

Presenter

Presentation Notes

We believe we can serve at least the 2nd and 3rd tiers of these schools, which comprises an opportunity of $3.1Bn. The final tier is too small and too risky to tackle right now. In order to serve the tier 2 and tier 3 schools, we need to appreciate why the expansion term loans from ISFC and Varthana are not suitable.

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Volatile parent incomes leading to

default risk

Issues faced with expansion term loans

Low margins Inability to service initial payments

Yr1

Yr2

Yr3

Yr4

Yr5

Expansion complete

CADS

EMI

$Missed EMIs

$

Tier 2 LFPS face structural challenges

Presenter

Presentation Notes

First, these schools have low margins and limited cash available for debt service in the initial years since they are sub-scale. That cash flow does rise to sufficient levels after expansion, but the initial term loans payments remain a challenge. Second, these schools serve parents with more volatile incomes. Dips in parent incomes directly impact school revenues through drop-outs and empty seats, which can cause a school to miss a loan payment, increasing the default risk. For both of these reasons, fixed installment term loans are unsuitable for Tier 2 schools and below.

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Expansion complete

Yr3

Yr4

Yr5

CADS

Demand dividend (% of rev)

MFI-based tuition

insurance

IEP mechanisms

Deferred Payment

+Demand Dividend

Tuition insurance with

MFI partner

Volatile parent incomes leading to

default risk

Issues faced with expansion term loans

Low margins Inability to service initial payments

Yr1

Yr2

Yr3

Yr4

Yr5

Expansion complete

CADS

EMI

$$Missed EMIs

Loan

$ $

EduIndia financial mechanisms open up the market

Presenter

Presentation Notes

Our mechanisms get around this issue. Firstly, we offer deferred demand dividend payments based on percentage of revenue. This better matches the school’s cash flow available for debt service since payments only start in Year 3, after expansion efforts are complete and the school has higher margins due to scale. Further, if the schools revenue is impacted for any reason, their payment amount also reduces which reduces probability of default. Secondly, we offer tuition insurance in the form of student loans from our MFI partners. This prevents drop-outs due to temporary parent income dips since parents can borrow to cover missed fees and repay the MFI later. This keeps kids in school and hence smooths out school revenues as well, further reducing the risk of default. I will hand over to Chris to speak to the business model around these innovations.

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The eduindia fund model

Capital Expenditure Demand Dividend School Loan

Monthly dividends (7% real IRR)

Investment

Monthly payments14% revenue yr 3-7

School

(x 1000)

Contractor

InstitutionalInvestors

IEP

Presenter

Presentation Notes

Institutional Investors: UBS: http://www.4-traders.com/UBS-AG-9365071/news/UBS-AG-UBS-launches-first-fund-for-Impact-Investing-17288728/ AXA: https://www.theguardian.com/sustainable-business/axa-fund-socially-responsible-investmenthttps://www.theguardian.com/sustainable-business/axa-fund-socially-responsible-investment Family Offices

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The eduindia fund model

Capital Expenditure Demand Dividend School Loan

Monthly dividends (7% real IRR)

Investment

Monthly payments14% revenue yr 3-7

School

Tuition Insurance

100% tuition+ 15% interest

300k USD for diligence & collections100% guarantee on parent loan default

Parents

MicrofinanceInstitution

(x 1000)

Contractor

InstitutionalInvestors

IEP

Presenter

Presentation Notes

Institutional Investors: UBS: http://www.4-traders.com/UBS-AG-9365071/news/UBS-AG-UBS-launches-first-fund-for-Impact-Investing-17288728/ AXA: https://www.theguardian.com/sustainable-business/axa-fund-socially-responsible-investmenthttps://www.theguardian.com/sustainable-business/axa-fund-socially-responsible-investment Family Offices

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Finer issues resolved to ensure effectiveness

• Extensive due diligence process• School has skin in the game• Partner MFIs

School Loan Default Rates

Model robust at 15% school default rates (3X ISFC

rates)

• Specialized & standardized process• Online application with proprietary metrics• Leveraging MFIs to do first round checks

High Due Diligence Costs

USD 1,750 per acquisition (30% of ISFC cost1)

Construction Delays

• Check background information of contractors • Outcome based payments

Expect a 3 month delay, reducing IRR by 0.4%

(1) Based on interview with ISFC: 8 person team for 2 weeks earning Rp50,000/mth including travel expense for half the team

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Social impact from new seats and fewer dropouts

7%real returnsnet of fees

Inflation hedged On par with Indian Debt

Fund benchmarks

156,000new graduates

Investors LFPS

Students and parentsMFIs

IEP

With model in place, value for all involved: Investors

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Support to get registered Improved perception

80,000new seats

created

250new schools

registered

Access to expansion capital at lower rates than currently availableInvestors LFPS


IEP

With model in place, value for all involved: Schools

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Drop-outs prevented Students have access to

better education

Tuition insurance scheme in case of parent’s financial constraints

Investors LFPS


80,000drop-outs prevented

IEP

With model in place, value for all involved: Students

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$300Krevenue / year

Additional income from fact checking & collection

200,000loans disbursed

Investors LFPS


Opportunity to cross-sell

IEP

With model in place, value for all involved: MFIs

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Expected NetReal Returns

On par with Indian Debt Fund benchmarks

Fund profile

Type Closed End

Horizon 10y (callable commitments to yr 4)

Size USD 11 MM

Ticket USD 0.5 MM

Fees Mngt fee: 2% p.a.Carry: 20% (9% real hurdle rate)

Target portfolio 1,000 schools by year 3

Loan/school USD 17k

Collateral 80% of portfolio

Return 7% real net IRR (inflation-hedged)

⍺ 2% (over India LT Private Debt)

(6)

(4)

(2)

-

2

4

6

Year1

Year2

Year3

Year4

Year5

Year6

Year7

Year8

Year9

Year10

Mn

USD

(Rea

l)

Fund 1 flows to investors (Gross of fees)

Expected: School default @ 10% p.a., Real gross IRR 9%

EduIndia I offers attractive returns

Presenter

Presentation Notes

https://www.relakhs.com/best-debt-mutual-funds-india-top-debt-funds/

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Delivered through a strong execution roadmap

Fund setup

Partiesengaged

Milestones

Q1 Q2 Q3

Kick Off First loans

Metric creation & approval

Team, office & portal creation

Investors:• Deustche Bank• Blue Orchard• Microvest• Symbiotics

School acquisition & assessment

Q4 Q5 Q6 Q7 Q8

360 schools

On-going operations

Fund raising for Fund 1

Fund disbursements to contractors

Partners:• ISFC• Varthana• RBI• NISA

MFIs:• Bandhan• Saadhana Microfin Society • Microcredit Foundation of India

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Fund II (US$140M): IndiaFund I (US$11M): Pilot

Location & # of potential

target schools

Potential investors &

partners

Subsequent (US$1.1B): Global

1,000target schools inUttar Pradesh

• Partnering with ISFC/Varthana

• Impact investors• Impact investors• Family offices

• Impact investors -international

• Family offices

12,000 target schools inSouthwestern

states

100,000 target schools in

India, Brazil, Indonesia and

Africa

Social impact• 80,000 new seats• 80,000 drop-outs prevented• 250 new registered schools

• 960,000 new seats• 960,000 drop-outs prevented• 3,000 new registered schools

• 8 MM new seats• 8 MM drop-outs prevented• 25,000 new registered schools

EduIndia model has strong potential to scale

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The right team to deliver

17

Erica Hoeveler Chris ShawAshwin Halgeri

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Thanks to all of our mentors

Neeraj Sharma, CEOAnkur, CFOSteve Hardgrave, CEO

Shahid Anwar, Principal LFPS

Padma Matmari, Principal LFPS

Hemant Naik, Contractor

Apaar Kasliwal, UpSkill

Jyoti Aggarwala,Big Path Capital

Seema Bansal, BCG

Adam Connaker, Rockefeller Foundation

Peter Hinton, Capital Plus

Astha Chaturvedi,Chaturvedi Foundation

Paul Christensen,Kellogg Professor

Jose Liberti,Kellogg Professor

Deepro BhattacharyyaBandhan

Gayatri KannanBandhan

Saurabh NarainNCIF

Devin TaylorUS Trust

Radhika Batra, Microvest

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Potential partners & investors names

• Blue Orchard

• Microvest

• Symbiotics

• Deustche Bank

• Family Offices

• Bandhan

• Microcredit Foundation of India

• Saadhana Microfin Society

• Grameen Koota

• Bharat Financial Inclusion

• Asmitha Microfin Ltd

Potential MFI partnersPotential investors Potential MFI partners

• National Independent Schools Alliance

• Chaturvedi Foundation

• Teach for India

• Make a Difference

• Pratham

• Barefoot College India

• Cry

EduIndia Fund I · Target portfolio: 1,000 schools by year 3. Loan/school: USD 17k. Collateral: 80%...

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Transcript of EduIndia Fund I · Target portfolio: 1,000 schools by year 3. Loan/school: USD 17k. Collateral: 80%...